Category: Business

Introduction

The debate on whether there should be an increase of the minimum wage has been in the pipeline since the beginning of the year. Over the past few months, it has spiraled into different perspectives. On the one hand, some people question the legal backing of having a minimum wage (The Week). In the first place, some experts feel that there should not be a minimum wage subscription in a market-based economy. On the other hand, others feel that the minimum wage should remain but the federal government should possess the mandate of determining the minimum wage. Other commentators report that only market forces of demand and supply should determine the minimum wage while others feel that it is the task of the labor unions. In addition to the federal government, the labor unions, and the market forces, there are those who feel that both the general public referendums and the local governments stand a better chance of determining the minimum wage (Herr and Kazandziska). Based on the events, this research paper seeks to avail support for the statement that there should be a minimum wage and the federal government in consultation with labor unions and a consortium of employers should decide its rate.

Body

As a background for this task, it is important to understand the nature of a minimum wage and the rationale for having it in the first place. A minimum wage is the lowest wage that has either been determined legally in the form of a legislation or through a special pact made by concerned players such as labor unions, the government, and the employers (Neumark and Wascher). Further, Investopedia adds that the legal backing of the minimum wage makes it an offense for an employer to pay an employee any amount less than the prescribed minimum wage. Whether or not there should be a minimum wage happens to be an issue of whether the economy is market-based, planned or mixed. In fact, many nations around the world, including the United States, exhibit the traits of a mixed economy. It means that the government regulations restrain the marker-based structures, which characterizes the planned economy. The mere fact that the United States is a mixed economy means that the government has the power to control the minimum wages through labor unions and representative consortiums (Harriman and Strimling).

Addressing the concern of who should decide the level of the minimum wage, the first and often most attractive is the factor of leaving this role to the market forces. Market forces of supply and demand determine the minimum wage on the grounds of equilibrium. It means that the minimum wage gets determined where the demand of labor equals the supply. Consequently, the presence of labor shortages presupposes that there will be competition among the employers to recruit the best workers and, as a result, there will be an increase in the wages. If there is an oversupply of labor, the employees settle for less just for the sake of getting that job. In many countries across the world, the rates of unemployment are still high meaning that the supply of labor is more than the employment opportunities available (Dube). The application of economics to this problem means that the market forces currently set wage rates that are lower than optimal ones while other economic parameters such as inflation are either rising or expected to rise. Consequently, the government’s assistance in the determination of the minimum wage becomes important.

The determination of wage rates by the government takes place in planned economies, for instance, North Korea, and in mixed economies, such as the United States. The federal government can hinge the wage rates on several factors, including the inflation and interest rate indices. However, the government also needs to consider other factors such as the cost of production and the implications that it may have on the rates of unemployment (Flinn). In other words, the government has to strike a balance between the wage rates, rates of unemployment, and inflation in the economy. To achieve this goal, the government should collaborate and consult with other industry players.

The third perspective on who should decide on the minimum wage is the issue of the public acting through either the labor unions or public actions such as unrest and referendums with the latter being successful only in democratic nations. The public unrest usually takes place when the public feels that the marginal social sacrifices made do not match the marginal social benefits gained. In the case of the wage rate, the feeling is that the employees could get more than they receive considering factors such as inflationary pressure and the increases in the minimum wage rates. It causes social unrest as has been experienced in the United States over the last few months (Biggs and Perry). At the referendums, the public engages the government through the ballot with the aim of showing that the need is rather expansive. However, it happens if structures such as labor unions fail. The latter are the organizations that generally represent the employees in sittings with employers and other industry players and they generally offer collective bargaining power (Dube). For this reason, labor unions may not be able to achieve the needed level of minimum wage.

Conclusion

In conclusion, this paper asserts that there should be a minimum wage and the federal government in consultation with labor unions and a consortium of employers should decide its rate. It is because the United States is a mixed economy country, in which the private and the public sectors get involved in the policy-making process. Consequently, the federal government in consultation with labor unions and a consortium of employers provide better chances of coming up with a wage rate policy that will be binding to all players with no negative implications on the economy.

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